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Sunday, January 26, 2014

Minimum wage debate will go on

Jan 26, 2014 Advocates have reason to cheer Singapore taking small step forward by making a change for cleaners

By Han Fook Kwang Managing Editor

The debate over whether there should be a minimum wage in Singapore has just taken a new turn.

This, after the Government announced new laws it would be introducing that will ensure cleaners earn at least $1,000 a month.

It would be the first time in Singapore that employers will have to pay a minimum salary to workers backed by law.

Does it signal a change from the Government's previous position opposing the setting of any form of minimum wage?

Will it lead to more workers being similarly protected?

What does it mean to Singapore's overall approach in helping low-income workers?

These are interesting questions that will continue to fuel the debate, even as the Government was quick to add that this latest move was different from having a national minimum wage.

[If cleaners are paid $1000 minimum, it does not mean that other jobs, say night watchmen will be paid $1000. At least there is no legal requirement to do so. But it does mean that other comparable jobs (i.e. someone could either be a cleaner, or say a dishwasher, or cook's assistant, and they were all currently paid $800 as a starting salary, all things being equal, they will now choose to be cleaners.) will "lose" potential new "recruits" to the cleaning industry. So if the govt is signalling that cleaners are now a "essential" or critical service, this is the right move. That said, if other industries not legally required to pay $1000, now have to compete with the cleaning industry for new employs, they will need to meet the minimum as well. Not exactly a National minimum wage, but in a tight labour market, it might as well be.]

First, it was highly selective, affecting only the cleaning industry, with security guards next on the list.

Second, it was arrived at through negotiations between the government, employers and unions and not mandated by fiat.

It must have felt it necessary to make clear these points lest Singaporeans ran away with the mistaken idea that it had changed its fundamental position on the issue.

But the move should gladden the hearts of those pushing the minimum wage case. It might not have been the complete victory they wanted, but the defences appear to have been breached.

It has been some time coming.

When the Government dismissed the idea not too long ago, many people felt it was too quick to do so without giving the matter the proper study it deserved.

Even the labour movement chief appeared in too much of a hurry to declare his opposition to the idea, leading many to wonder why, as the ultimate protector of workers' rights, he was so dismissive. The arguments made then were that a national minimum wage wasn't the best way to help these workers as it would discourage employers from hiring and lead to unemployment.

It was argued that that was what had happened in countries with such laws, including many European countries currently suffering from high unemployment.

Instead, Singapore's approach of using Workfare, in which the state topped up the wages of low-income workers, was said to be superior as it did not add to employers' cost.

These arguments didn't satisfy the critics because the economic literature isn't conclusive, one way or other. You could probably find as many economists arguing the case for having minimum wage as those in the other camp.

Indeed, this debate is still very much alive all over the world.

Hong Kong, supposedly the freest economy in the world, introduced a minimum wage in 2010 and announced it was increasing the amount last year because of the benefits the new law had brought.

In the United States, there is now a raging debate over whether to raise the minimum wage, with Democrats for it and Republicans against.

President Barack Obama, who is for the increase, has argued that there is no evidence that doing so will cost jobs.

Nobel laureate in economics Paul Krugman wrote in the New York Times last month: "When it comes to the minimum wage, we have a number of cases in which a state raised its own minimum wage while a neighbouring state did not. If there were anything to the notion that minimum wage increases have negative effects on employment, that result should show up in state-to-state comparisons. It doesn't."

Germany will soon introduce a minimum wage, the result of an electoral pact between Chancellor Angela Merkel's ruling party and the Social Democrats.

So, the issue is still very much alive, and not just in Singapore.

This isn't surprising because income inequality is rising everywhere, and many see a minimum wage as one answer to it.

Singapore hasn't quite accepted this but the latest move shows that it isn't as ideologically opposed to it as it was before.

One important difference between a minimum wage and Workfare is the effect it has on employers.

When the state tops up workers' wages, employers have less incentive to increase salaries on their own or raise productivity to match the higher cost.

But when they have to pay the increased wages from their own pocket, it is more likely they will want to make sure their staff produce more.

Hence a minimum wage works better than Workfare in restructuring the economy by raising productivity and forcing employers to make better use of workers.

Singapore's approach to do it selectively and through negotiations isn't a bad move either because it leverages on the country's strength in getting unions and employers to work together through the tripartite partnership.

In fact, it is not unique in doing this.

Italy, Sweden and Denmark - and Germany before its latest move - have no mandated minimum wage but have sectorial minimum wages arrived at through negotiations.
Because the economic evidence is inconclusive, the minimum wage question is more a political than an economic issue, and is ultimately about the sort of society people want to live in.

That has been the case in other countries, with Germany being the latest example of politics trumping economics.

It will be no different here.

When you see a cleaner hard at work and whom you know earns only, say, $600 a month, do you say:

It's a free market. Her employer is willing to pay her only that much and since she's willing to work for that pay, what's the problem?

Or

That's just unacceptable, taking into account the salaries of all the other people - office workers, teachers, managers, etc - and the cost of living here. Everyone doing an honest day's work should have a decent standard of living, which is only possible with a wage of at least $X.

For a long time, Singapore operated in the first mode.

But with the income gap widening, and an increasing number of Singaporeans thinking in the second mode, the Government has had to move accordingly.

It might not want to call it a minimum wage - a "progressive wage model" is its preferred label - but the ground has shifted from under its feet.